Alternative dispute resolution is rightly gaining steam as an efficient, fair mechanism for the resolution of complex business disputes. Many companies are redrafting their standard-form contracts to include mandatory arbitration clauses. This is particularly true for companies doing business across state or national borders, so that they might avoid being hauled into court in a foreign jurisdiction. But what if you agree to arbitrate a dispute and end up losing? Do you have any recourse?
The answer is yes, but your chances of success are slim. Unfortunately for the losing party to an arbitration, “[j]udicial review of an arbitration award is among the narrowest known in the law.” Maine Central R.R. Co. v. Brotherhood of Maintenance of Way Employees, 873 F.2d 425, 428 (1989).
Although parties often choose to arbitrate in order to avoid time-consuming and costly court proceedings, the appropriate venue for challenging an arbitration award pursuant to either the federal or Massachusetts arbitration statute is a trial court. A dissatisfied, losing party can move to vacate (or, for “vacatur” of) an arbitration award pursuant to Section 10 of the Federal Arbitration Act or Section 12 of the Massachusetts Uniform Arbitration Act. According to Section 10 of the FAA, an award may be vacated:
(i) Where the award was procured by corruption, fraud, or undue means;
(ii) Where there was evident partiality or corruption in the arbitrators, or either of them;
(iii) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(iv) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
The grounds for vacatur in Section 12 of the MUAA are slightly different than those enumerated in the FAA, but are similarly narrow.
Moreover, in Hall Street Assocs. v. Mattel, Inc. 552 U.S. 576, 583-85 (2008), the Supreme Court held that the grounds for expedited vacatur enumerated in the FAA are exclusive and cannot be supplemented by agreement.
Parties contemplating a motion for vacatur should be aware that both the FAA and the MUAA generally require that the losing party take action very soon after the issuance of the arbitration award. If pressed to challenge an arbitration award, consulting with experienced counsel is highly advisable.